When your career comes to an end, ideally you'll have multiple income sources at your disposal. If you worked for many years, you'll likely have money coming your way from Social Security. But you may end up heavily reliant on your personal savings to cover your senior living expenses, and understandably so.
The more money you manage to bring with you into retirement, the more financial freedom you're apt to enjoy as a senior. But you'll also need to manage your retirement savings carefully. If you don't, you might risk depleting your cash reserves in your lifetime.
Such is a fear that most Americans have, according to a recent Allianz survey. In fact, 61% of Americans are more afraid of depleting their savings than actually dying. Talk about scary.
Image source: Getty Images.
If you're worried that you'll end up spending down your 401(k) or IRA prematurely in retirement, there's one good way to mitigate that fear: Establish a smart withdrawal strategy. That could help your money last for many years, and help you sleep better at night.
It's all about the right approach
Whether you entire retirement with savings of $500,000, $1 million, or more, it's easy to get into that "I don't have enough" mentality. And it's important to manage your nest egg well regardless of how much money it contains. A $1 million IRA can disappear faster than a $200,000 IRA if you aren't careful with it.
To this end, it's essential that you come up with a smart withdrawal strategy -- either on your own or with the help of a financial advisor -- ahead of retirement. And that strategy should hinge on factors like your outside income, expenses, goals, and expected life span.
For many years, financial experts would tell retirees to withdraw from their savings at a rate of 4% per year. At this point, though, the "4% rule" is fairly outdated, primarily because it's a bit too aggressive for today's bond interest rates.
Bonds aren't paying the same amount of interest now that they were back when the 4% rule was established. And since retirees tend to invest somewhat heavily in bonds, it's important to adjust that rule accordingly.
You may want to work with a 2% or 3% withdrawal rate as a baseline rather than 4%. But again, the specific withdrawal rate you come up with should be a personalized number -- one based on the factors mentioned above. You should also be prepared to adjust your retirement-plan withdrawal rate as necessary; perhaps your expenses rise or decrease, or the market underperforms or does better than expected.
It's easy to see why so many people are worried about running out of money in retirement. But if you go in with a solid plan, you may be a lot less likely to fall victim to that fate. And you may also be less likely to spend your time worrying about ending up cash-strapped.
